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  • Question

    If the EV system is disapproved, would the payment withhold be applied to either one of these CLINs, both or to the entire contract?


    Answer

    If the ACO is conducting appropriate surveillance and corrective action reports, and determines the EVMS deficiency potentially impacts cost tracking on both CLINS, the ACO is not prohibited from withholding up to 5% of the payments on both the CPFF and the FFP CLINS.

     

    References:

    1. Public Law 111-383 Section 893

    2. DFARS 252.242-7005, DFARS 234.201 and 234.203, DFARS 252.234-7002, DFARS

    PGI 234.201

    3. DOD 5000.02 Instruction, Table 5

    4. DOD EVMS Implementation Guide, Oct 2006

    5. DCMA Guidebook

     

    - The statutory definition of "covered contract" for a business system (including EVMS), the DFARS prescription and clause for the EVMS,  as well as DoDI 5000.02 Table 5 indicate EVMS would be required cost reimbursement and incentive type contracts, but would not be included on a FFP contract unless approved in advance by the Milestone Decision Authority.

    - The DoD EVMS Implementation Guide provides guidance regarding the application of EVMS on contracts with both cost reimbursement and fixed price CLINS

    - The above references state the process for withholding payments for deficiencies in contractor business systems, including EVMS:  no more than 5% withhold of payments for deficiencies with a single system, and no more than 10% withhold of payments for deficiencies in two or more systems.

     

    - Per the statute, the definition of ``significant deficiency'' with respect to a contractor business system (including EVMS), means "a shortcoming in the system that materially affects the ability of officials of the Department of Defense and the contractor to rely upon information produced by the system that is needed for management purposes."

     

    - DoD's EVMS Implementation Guide, Oct 2006, indicates ACOs are responsible for basing their business system deficiency determinations by engaging the contractor through surveillance and corrective action reports.  While this Guide addresses the application of EVMS requirements to "mixed contract types" in paragraph 2.2.3.3., it does not specifically address this payment withholding question.

     

    - Per the DCMA Guidebook, paragraph 1.5.2, "For each significant deficiency identified, the COs narrative document shall explain the position of the auditor/functional specialist, Contractor, and CO. The CO shall address the Contractor's corrective action plan and estimated time for follow-up review, as well as the actual or potential impact the deficiency has on proposed costs, billings, and estimated cost at completion and any other pertinent information that may impact contract award."

     

    - It is possible the ACO could face a scenario where an EVMS deficiency could jeopardize accurate cost tracking for both the CPFF and FFP CLINS.  For example:

          1.  An FFP and a CPFF CLIN on the same contract;

          2.  EVMS is applied only to the CPFF CLIN;

          3.  The ACO finds a significant deficiency with the EVMS which could allow contractors to accidently charge FFP tasks on the CPFF CLIN;

          4.  Unless the EVMS deficiency is fixed, the Government could pay full price for the FFP CLIN, and pay more than expected for the CPFF CLIN;

          5.  Thus, the total contract price paid by the Government would increase due to the EVMS deficiency.

     

    - In such a scenario, after conducting surveillance and corrective action reporting, if the ACO determines the EVMS deficiency is jeopardizing accurate cost tracking on both CLINS, the ACO is not prohibited from withholding up to 5% of the payments on both the CPFF and the FFP CLINS.  In making this determination, the ACO should document how the deficiency materially affects the Government's ability to manage the overall contract, and why withholding on both CLINS is necessary to minimize risk to the Government of paying too much for the whole contract.

     

    - It would also be consistent with the references above for the ACO to withhold payments only on the CPFF CLIN, if the ACO determined the impact of the EVMS deficiency did not relate to the FFP CLIN.

     

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